Vice President | HUB International Insurance Services, Inc.
A growing number of people are adding to their traditional investments in stocks, bonds, and real estate by transforming their passion for collectibles into more than a hobby. These collectors recognize that items such as fine art, wine, antiques, and other unique objects can gain value over time in much the same way as traditional investments. They may even act as a complement to more traditional investments.
The term “passionate investing” is a fitting name for this type of asset, because the value of these items transcends monetary value to include aesthetic, historical, and personal value. They can truly become passions for their collectors. Items may include family heirlooms and rarities of all kinds. Collectors take great pride in the pieces they have curated, often viewing themselves as guardians of history.
Yet despite the sentiment that can accompany this kind of investment, many people fail to devote the same attention to managing the risks involved with passionate investments that they do with more traditional investments. Considering the natural and criminal disasters that can befall these collections, curators face a unique situation when it comes to their security. Understanding these risks—and how to mitigate them—can prevent a world of heartache.
Here are 10 steps collectors can take to protect their passionate investments:
1. Assemble the right team of experts.
Collectible prices fluctuate based on unpredictable factors, including market demand, taste, and critical perspectives. It’s essential to understand asset values and potential loss exposures. Creating a team with broad expertise in loss mitigation and prevention is the first step to manage the risk of loss.
The right team of experts should include:
- An independent insurance agent or broker,
- An insurance company specializing in the risks and issues you are concerned about,
- Various appraisers,
- A financial advisor, and
- An art conservation laboratory for pre-and post-loss advice and services.
2. Establish a system for tracking and valuing items.
The larger a collection grows, the more important it is to have a system in place for the regular tracking and valuation of items. Pieces in large collections are often poorly documented or documented using outdated methods that fail to account for rising values.
Consider purchasing collection-management software to track details such as the name of the object, size, condition, purchase date, appraisal record, and other key attributes. Keep your records up to date and store them off-site and in a safe location such as a bank safe deposit box or a secure, private data-hosting solution.
3. Consider where you display your items.
When displaying your valuables, a little common sense goes a long way. Start by using museum-quality hanging mechanisms, and hire professional framers to hang individual pieces.
Avoid hanging paintings close to the floor where they are vulnerable to flood waters and damage from children and pets. Never display art above an active fireplace. Avoid locating collection pieces near windows where they are vulnerable to sunlight. If that’s not possible, consider installing windows that reduce ultraviolet light penetration.
Never place valuable rugs, paintings, or antiques under bathrooms, laundry rooms, or any other area with the potential for pipe leakage or flooding.
4. Store your items properly.
Avoid storing collectibles in an attic or basement where heat and humidity reach extremes. For items not on display, consider the services of a company that specializes in storing collectibles.
If wine is your passion, store it in a temperature-controlled wine cellar. Make sure your climate-control system has a backup power supply. Place wine bottles on their sides, away from a constant light source.
5. Safeguard against fire and smoke damage.
Make sure your homes have functional fire and smoke detection systems. Consider installing a waterless fire protection system that won’t damage your valuables. If you have a water sprinkler system, make sure it is adjusted so that valuable art is safe from water spray.
Be sure to inform your local fire department where you store your art, antiques, and collectibles so that they can extinguish a fire without causing further damage.
6. Protect against theft.
Consider investing in perimeter and external security systems. When registering collections, make sure registries keep all information confidential so as not to alert thieves.
7. Focus on the safety of items when shipping and loaning.
Use professional and reputable art shippers. If you are shipping by air, consider the Transportation Safety Administration’s Certified Cargo Screening program. It allows certified art shippers to inspect and seal packages and reduces the risk of airport security damaging your items.
If you loan valuable items to a museum, have your insurance agent or broker examine the museum’s insurance policy to make sure your collection will enjoy appropriate coverage.
8. Expect the unexpected.
If you need to move pieces from your home on short notice (e.g., during hurricane season), create a relationship with an art transportation company, and prioritize pieces for evacuation.
9. Properly insure your items.
Many collectors have not secured proper coverage for their passionate investments. Too often, they over insure against minor risks and underinsure against major ones. In some cases, collectors avoid appraising and insuring valuable heirlooms to avoid payment of estate taxes upon death. In the process, they run the risk of their valuables being sold by heirs.
Begin by choosing an insurance company that works with clients like you, and avoid mistakes by considering these often-overlooked coverages:
- Valued Items Rider — Many people first discover that a standard homeowners’ policy has minimal coverage for items like jewelry, furs, and wine when a loss occurs. A valued items rider covers items worldwide, including during transit and shipping. In case of a loss, the best policies will pay market value up to 50 percent higher than the scheduled amount of coverage.
- Floods and Earthquakes — If you live in an area vulnerable to flooding or earthquakes, this is essential. A basic plan usually excludes water backups, so make sure you have an all risk policy that includes unlimited backup of sewers, drains, and sump pumps.
- Mold — If there’s flooding in your home, mold won’t be far behind. All standard homeowners’ policies have limitations for mold, but extra coverage can be purchased for an additional premium.
- Liability — Liability insurance protects your assets if you become the target of a lawsuit. People who attempt to self-insure for liability can wind up losing everything. Individuals who want to go beyond the payouts on their home and auto policies should buy an umbrella policy with a personal excess liability limit equal to their net worth.
Other kinds of liability insurance are available as well. In today’s data-driven world, cyber liability is a huge consideration. If you conduct business online, you will need protection against loss created by the use of the Internet in business and at home. You also may want to consider directors and officers liability insurance if you serve on not-for-profit boards.
10. Keep your policies updated.
If you add items to your collection, make sure to update your coverage. The best insurance companies automatically provide coverage for new items but usually require notice between 30 and 90 days after purchase, depending on the item. Talking with your agent annually can keep you timely about changes.
Natural and criminal disasters are an unfortunate and sometimes inescapable part of life. But with proper preparation you can diminish their impact. If you’re a passionate investor, you know the care and attention that has gone into curating your collection. Don’t leave your investment vulnerable. You should give the same level of consideration required for your traditional investments to your passionate investments. Make sure your unique and valuable items have the safety net they deserve, and don’t underestimate the importance of having the right advisors available to provide sound financial advice and assist with mitigating life’s risks.
About the Author
Monica Keehfuss is a professional sales consultant for property and casualty and employee benefit insurance products with HUB International Insurance Services, Inc. With 37 years in the industry, she specializes in directors and officers, employment practices, management, and professional liability insurance. She is based in Riverside, California.